Henry Kaufman warns us: to avoid the next mega crisis the money world has to prepare now.
Henry Kaufman is 90 years old. A youngster. He was at high school with Alan Greenspan, at the NY FRderal reserve bank with Paul Volcker, he was a research guy at Solomon brothers and a board member of Lehmann brothers before the catastrophe arrived.
This “young man” publishes a book. A book- or rather a manifesto- “What to do to avoid the next crisis”.
For Kaufman, the latest “big boys of finance” are unfit to withstand potential dangers.
The first step in his solution is greater state intervention, more judgement- that is more thinking- and far less trust in quantitative models. The need is to stop the giants to trigger, willingly or not, a new financial catastrophe.
The description Kaufman gives is scary and mindboggling. In 1960 US government debt was 320 billion dollars. Today it is 17 trillion dollars. The 10 biggest financial conglomerates control 75% of US assets, while in 1990 they controlled 10%. Imagine what it means if a panic starts.
In 1960, adds Kaufman, derivatives hardly existed. Today they are worth 630 trillion dollars. No words to describe. He uses the phrase “tectonic shift” and is criticising Alan Greenspan who did not do what he should have done at the FED.
He, Kaufman, was against the first mega-merger at the end of the last century between Citicorp and the Travellers Group. He was right.
Beware he may be right again.